Dell moves away from build-your-own-PC
Posted
Apr 03 2008, 04:18 PM
by
Kim Peterson
Rating:
Customization is a big business these days. Starbucks says it can customize 87,000 drink combinations for its patrons. Whether it be clothes, cars or gadgets, allowing customers to order a unique version is becoming a successful business model.
Not so for Dell, a company who made a name for itself on its build-your-own-PC policy. This week, the company said it will focus less on the build-to-order model and more on selling pre-built versions. The switch is part of the company's mission to bring down costs.
When it comes to computers, people don't need an extreme level of customization anymore, executives told analysts this week. Customers are giving up the luxury of picking their own computer features and opting for cheaper, pre-made PCs from other companies. Dell's
share of the worldwide PC market has slipped to under 13% from 19% in 2006, and it has lost the title of top computer maker to Hewlett-Packard. Its growth has slowed to a trickle, while HP's 2007 growth could hit 30%.
Dell is now embracing the retail channel that has long been dominated by rivals, and has gone so far as to pull up stakes on
the kiosks it installed at shopping malls. Give the company credit for trying
to change with the times, although the change has been too slow so far.
Dell was also in the news today becuase it's going to have to cut more jobs than previously announced. It's fine to say you're going to cut 8,800 jobs, but don't go and hire for other positions if you want to reduce costs. That's exactly what Dell did.
So far, it has eliminated 5,500 of the 8,800 positions it announced last year. But it hired people in sales and customer support at the same time, so the net reduction has only been 3,200. The company won't say how many further job cuts it plans to make. Dell plans to close its desktop manufacturing plant in Austin, Tex., as part of the layoffs.
Dell also said it will buy back at least $1 billion in shares this quarter after repurchasing $4 billion last quarter. You'd think investors would be happy with all this news, but no: Dell shares rose less than 1% today to close at $20.12.
Dell aims to cut expenses by $3 billion a year by 2011. The computer maker is adopting a take-no-prisoners approach to cost-cutting this time around, execs told analysts.
"Every area of the company is being pursued," CEO Michael Dell said. He added that the "journey to transform the company" has begun, with major change taking place in five areas: notebooks, emerging countries, consumer, enterprise and small and medium businesses.
Analysts are responding well to Dell's plans. The company can be successful, wrote Citi analyst Richard Gardner, but it will struggle with soft demand for several more quarters until it sees savings in 2009 and 2010. And though Dell wants to cut costs, a Banc of America Securities analyst said that the company will have to spend money to grow in emerging markets and small businesses.
